Abundantly Affordable
The Cost of Regulatory Compliance in the United States
Francesco Trebbi, Miao Ben Zhang & Michael Simkovic
Review of Financial Studies, forthcoming
Abstract:
A key question for studying business dynamism is whether the costs of regulatory compliance fall homogeneously on small and large businesses. Using comprehensive establishment-level occupational microdata and occupation task information, we quantify a firm’s compliance costs as the share of wage bill for performing regulatory compliance tasks (RegIndex). We reveal an inverted-U relationship between firms’ RegIndex and their size: On average, RegIndex for mid-sized firms with around 500 employees is about 47% greater than that of the smallest firms and 18% greater than that of the largest firms. We further develop a shift-share methodology to disentangle the influence of regulatory requirements and enforcement on driving firms’ compliance costs.
Do product market threats discipline corporate misconduct?
Jie Chen et al.
Journal of Financial and Quantitative Analysis, forthcoming
Abstract:
We examine the efficacy of product market discipline as a deterrent to corporate misconduct. Firms that are subject to greater competitive threats in the product market are less likely to commit violations and pay lower penalties. Stakeholders react negatively to various types of violations, with product market competition amplifying these stakeholder reactions. In response, firms under competitive pressure are more likely to incorporate ESG-related incentives into executive compensation, demonstrate better worker safety practices, invest in green innovation, and use credible auditors. Our findings suggest that product market competition deters misconduct by increasing the expected costs associated with violations.
Do Market Reforms Cause Growth?
Jonathan Hartley, William Pallan & Brian Wheaton
University of California Working Paper, April 2026
Abstract:
Do market-oriented reforms cause economic growth? This paper revisits this question using a cross-country panel of reform episodes identified from various changes in well-known economic freedom and structural reform indices. We exploit the timing of reforms using distributed-lag and event-study frameworks that trace the dynamic response of per-capita GDP. We find little evidence of immediate growth gains and some short-run adjustment costs following reform. However, growth rises gradually and persistently over time, with economically meaningful effects emerging after several years. These patterns are robust across alternative measures of reform and specifications. The results reconcile conflicting findings in the literature by showing that market reforms generate long-run growth gains despite short-run disruptions. Overall, the evidence supports the view that institutional liberalization operates through slow-moving channels that accumulate into sustained improvements in economic performance.
Can merger remedies cause more harm than good?
Yann Delaprez
Journal of Law, Economics, and Organization, forthcoming
Abstract:
This article investigates whether merger remedies, such as divestitures, can cause more harm than good using a model of firm conduct. The model is estimated leveraging the variation generated by a large divestiture in the US beer market. First, I find that price coordination, materialized through conduct parameters, acts as a countervailing force that limits the pro-competitive effects of a divestiture. Price coordination eliminates about 80% to 133% of the welfare gains from a divestiture. Second, based on counterfactual simulations, I show that a merger cleared with divestiture is likely to reduce consumer surplus more than a merger approved without divestiture.
Does Amazon’s Dual Role Weaken Marketplace Competition?
Sharmistha Sikdar, Vrinda Kadiyali & Giles Hooker
Journal of Marketing, forthcoming
Abstract:
Amazon’s dual role, as both marketplace owner and first-party (1p) seller, gives it power over third-party (3p) sellers who sell similar items. This dual role can weaken 3p sellers’ ability to compete, possibly harming 3p sellers and consumers. We examine three aspects of marketplace competition. First, we examine price change dependencies. We find that 1p price drops after either higher Buy Box (i.e., the Add to Cart or default sales box on Amazon’s product page) prices or large 3p price increases; 3p prices decrease subsequently. Second, we analyze Buy Box seller selection since this is a critical conduit for demand. We find both high 1p and 3p prices are penalized in Buy Box selection. Low-reputation and intermittent 3p sellers cannot win Buy Box even at significantly lower prices. At equal prices, for some prices, Buy Box favors 1p over equal-priced 3p, and vice versa for others. Third, to see whether entry barriers weaken competition, we estimate a 3p seller entry model. Higher 1p prices are associated with more 3p sellers, suggesting low entry barriers. Combined, our results suggest Amazon’s dual role does not weaken competition in the marketplace. We discuss implications for marketplace participants, antitrust policy and research.
The Distributional Costs of Effective Consumer Regulation
Tamar Kricheli-Katz & Florencia Marotta-Wurgler
NYU Working Paper, April 2026
Abstract:
Disclosure is a cornerstone of consumer protection regulation, yet little is known about its differential effects across consumers. We study how disclosure format influences decision-making across the income distribution, drawing on insights from behavioral research on financial scarcity. Prior work indicates that financial stress can activate a scarcity mindset, narrowing the cognitive resources available for decision-making, and we examine whether, and how, disclosure design interacts with these constraints. Our evidence comes from three quasi-field experiments and two additional studies (N = 3,502) involving credit card gift cards, in which participants chose among options varying in fees and fund availability, with terms disclosed in one of three formats: expandable ("click here to view complete terms"), full (complete terms displayed), and salient (key terms made prominent). Salient disclosures significantly improved participants' ability to select dominant options and avoid dominated ones, greatly reducing mistaken choices. However, when choices required a nontrivial trade-off between immediacy and cost, salient disclosure increased the likelihood that low-income consumers selected high-fee cards offering immediate access to funds, compared to high-income consumers. Consistent with a disclosure-induced scarcity mechanism, salient disclosures also heightened self-reported financial stress among financially vulnerable participants, who continued to select immediate access even when fees consumed as much as 40% of the card's value. The results suggest that salient disclosure can often improve decision accuracy, but it may also lead to immediacy-focused, stress-driven choices among the financially vulnerable; these findings are not easily explained under a rational choice framework and point to a tension at the heart of disclosure policy, in which interventions that reduce mistakes may simultaneously exacerbate inequality in decision outcomes.
Out of Market, Out of Mind
Louis Kaplow
Antitrust Law Journal, March 2026
Abstract:
In certain antitrust settings, it is sometimes claimed that otherwise cognizable benefits (efficiencies, procompetitive effects) do not count in the balance if they arise in a different "market" from the locus of harm. Such an omission would be pernicious. If broadly applied, it would condemn many movements of resources to their best uses, the lifeblood of a well-functioning economy. After all, when supply and demand shift or drastic innovations channel resources in new directions -- whether by contracts, internal decisions of firms (including monopolists), or acquisitions -- they necessarily move resources away from being deployed somewhere else. An immediate implication is that, at a fundamental level, healthy economic activity routinely leaves some suppliers and customers worse off, no matter how widespread and substantial are the benefits to others. Attempts to regulate an economy that ignore "out-of-market" benefits would undermine its basic operation. It would be dangerous to expand this type of limitation on sound analysis and decision-making; instead, any such restrictions should be expunged.
Competition and causal inference: Economic choice and welfare analysis under potential outcomes
Samuel DeCanio & Colin Jennings
Politics, Philosophy & Economics, May 2026, Pages 187-207
Abstract:
We apply widely accepted arguments regarding the inferential properties of scientific experiments to analyse markets and consumer decision-making. Market competition is depicted as a means of generating counterfactual data regarding product characteristics resembling experiments’ use of treatment and control conditions to facilitate causal inference. Much like scientific experimentation, competition creates counterfactual data that allows consumers to make causal inferences regarding rival products’ treatment effects upon their welfare. Absent the multiplicity of differentiated goods that competitive markets produce, consumers cannot engage in causal inference and demand curves may become inaccurate specifications of marginal social benefit. This application of the potential outcomes framework to microeconomics offers an account of market competition that has implications for understanding welfare problems created by uncompetitive and monopolistic markets, industrial organisation, and the underlying justifications for anti-trust policy.
The Effect of Mergers on Innovation
Kaustav Das, Tatiana Mayskaya & Arina Nikandrova
American Economic Journal: Microeconomics, May 2026, Pages 348-394
Abstract:
We study the effect of a merger on R&D activity in a dynamic model with uncertainty about the feasibility of innovation. The merger has three effects: It may reduce the number of follow-up innovations (cannibalization effect), increase the probability of the first game-changer innovation (appropriability effect), and bring this innovation forward in time (informational effect). The model suggests mergers are more desirable when R&D outcomes are highly uncertain, but less so when the innovation path is clearer. A surprising policy implication is that the benefit of the merger may be higher if the first and subsequent innovations are closer substitutes.
The adoption and efficacy of large language models in US consumer financial complaints
Minkyu Shin, Jin Kim & Jiwoong Shin
Nature Human Behaviour, April 2026, Pages 669-680
Abstract:
This research explores the impact of large language models (LLMs) on consumer complaints submitted to the US Consumer Financial Protection Bureau. Analysing 1,134,512 complaints from 2015 to 2024, we document a sharp increase in LLM usage following the release of ChatGPT. An instrumental variable analysis estimates that LLM usage increases the probability of obtaining favourable relief by 6.9 percentage points (95% confidence interval, (4.9, 8.9)). The analysis also reveals evidence of negative selection, where consumers otherwise prone to adverse outcomes are more likely to adopt LLMs. To further substantiate these findings and test the mechanism, we conducted three online controlled experiments (total N = 1,010 US participants); these demonstrate that LLMs can increase the likelihood of obtaining relief by enhancing the presentation of complaints without altering factual content. These findings suggest that LLMs can act as an equalizer, highlighting the need for policies that expand access to these technologies.
Bureaucratic Capacity and Urban Planning: Evidence from Los Angeles
Edward Kung, Stuart Gabriel & Joseph Histen
University of California Working Paper, March 2026
Abstract:
Using data from the Los Angeles City Planning Commission, we document the role of bureaucratic capacity in influencing urban development outcomes. We show that public opposition and familiarity of cases matter. Cases that are fairly typical are more likely to sail through approvals, but cases exhibiting peculiar features are less likely to be approved and more likely to be delayed. We measure familiarity by how semantically unique the proposal is compared to other proposals of its category. A one standard deviation increase in uniqueness decreases the log odds of approval by 0.283. Public opposition matters as well: a doubling of the number of opposition letters reduces the log odds of approval by 0.137. The results are consistent with a model of bureaucratic choice with public monitoring, reputational risk, and cognitive constraints.
The Politics of Using AI in Policy Implementation: Evidence from a Field Experiment
Yotam Margalit & Shir Raviv
British Journal of Political Science, March 2026
Abstract:
The use of AI by government agencies in guiding important decisions (for example, on policing, welfare, education) has triggered backlash and demands for greater public input in AI regulation. Yet it remains unclear what such input would reflect: general attitudes towards new technologies, personal experience with AI, or learning about its implications. We study this question experimentally by tracking the attitudes of over 1,500 workers whose task assignments were randomly determined by either a human or an AI ‘boss’, with task content and valence also randomized. Across a three-wave panel, we find that personal experience with AI-as-boss affected workers’ job performance but not their attitudes on using AI in public decision making. In contrast, exposure to information about the technology produced significant attitudinal change, even when it conflicted with participants’ prior disposition or direct experience. The results highlight the promise of incorporating public input into AI governance.